Can creditors stop a property being sold off cheaply?

A couple of years ago, my uncle borrowed £200,000 from my mother to put towards the purchase of a property for his business. He took out a further £500,000 mortgage with a bank to pay for the rest. I think a contract was then drawn up to link my mother’s loan to the property and to say that, when the loan is recalled, it should be repaid within six months.

However, my uncle has since fallen out with the family and my mother has asked for the loan to be repaid. She is now concerned that my uncle might sell the property at a price that would cover only the money owed to the bank. Is it possible to put some kind of “stop” in place to prevent the property being sold off cheaply, without the agreement of my mother?

Nicholas Holland, partner at law firm Bircham Dyson Bell says that your mother is probably an unsecured creditor. This would be the case if your uncle or his company is the sole registered owner of the property, but your mother’s loan is not registered against the property and there is no evidence of any impropriety in respect of the loan from your mother – for example, that your uncle exerted undue influence over her at the time of the agreement. This means your uncle is free to sell the property to the extent permitted by the mortgage from the bank.

One solution might be to register a ‘restriction against title’ to the property, which would have the effect of requiring your uncle to obtain your mother’s consent to any sale. But the Land Registry will inquire whether your uncle objects to such a restriction – and may then require your mother to show sufficient interest in the property or the sale proceeds to register the restriction. Evidence of this would normally take the form of the loan agreement. The solicitor acting on the restriction will usually sign a certificate as part of the application confirming such an interest and the Land Registry will complete the registration of the restriction if your uncle does not object or the application is shown to have sufficient status.

Whether the loan agreement is chargeable against title to the property and whether the mortgage permits this to be done must be considered. If the loan is charged against the property, then any sale will provide for repayment of the debt unless the sale is ordered by the Court in a bankruptcy or a forced sale.

If there is a viable cause of action – for example, undue influence on your mother, it may be possible to obtain an injunction preventing any sale, pending resolution of that claim. However, your solicitor will usually need to comply with the pre-action protocols. After the pre-action protocols have been complied with your mother would be free to commence proceedings.

The relationship between the debtor and the owner of the property will need to be determined as well. It is possible the debtor may not have, indeed may never have had, any interest in the property.

There may be alternatives to proceeding with a claim in debt. For example, if you uncle is insolvent your mother may be in a position to have a trustee in bankruptcy appointed over his affairs.

So, yes, it may be possible to register a restriction. However, it appears that your mother may be merely an unsecured creditor. If so, unless she can establish that there is some cause of action, other than for debt, the owner of the property is free to dispose of it as he sees fit, subject to the terms of the bank’s mortgage.